Hard Money Loans: How long is the Financing Period?

How do you finance your short-term real estate investment projects? Hard money loans provide a quicker alternative to bank loans and are secured by real estates. These loans are different from traditional mortgages that run for 10-30 years. It is very difficult to get a conventional mortgage on a vacant or distressed real estate. As a result, these loans are often used by most real estate investors, especially for new acquisitions.

Here is an example:

A real estate investor stumbles upon an apartment complex that is being sold. It happens that the complex is vacant and in complete despair. We all know that it’s impossible to get a mortgage on a vacant or distressed property. So, what can the real estate investor do?

This investor has two options:

• Getting a loan from a friend, family member or a partner.
• Getting a hard money loan to purchase the property. The money is also used to cover the expenses incurred when repairing the apartment complex.

After the real estate property is rehabbed and is ready for rental, the investor can get a conventional mortgage for repaying the hard money loan.

Note that the credit isn’t envisioned as permanent traditional financing. Those who are new to hard money loans must remember to use the loans for short term plays, and not long term holds.

The loans are financed by private investors (or their accounts) and not conventional lenders like credit unions or banks. Usually, the terms are around 12 months, but the terms of the loan can be extended if need be to longer terms of two to five years.  The borrower has to pay monthly payments of the interest and a portion of the principal. The balloon payment is made at the end of the loan’s term.

The amount of money lenders can offer to a borrower is often based primarily on the subject’s property value. Maybe the borrower owns the property and wants to use it as collateral, or it may be a property the borrower wished to acquire.

Hard money lenders are not concerned about your credit records but the value of the property. Borrowers who can’t get financing from credit unions or banks because of a recent short sale or foreclosure can still get a loan in case they have adequate equity in the property used as collateral.